What is Freemium?


n. An acquisition model where a limited version of a product/service is offered to the customers for free without a time-limit, so that they make additional purchases once they find it useful.

How is ‘Freemium’ different from a ‘Free Trial’?

A freemium business model, unlike its counterpart - the free trial model, is not timeboxed. Freemium users can use the basic free version for free, forever. The approach followed in the freemium model is that if you hook customers to your product at their early stage, it will be easier to retain when they scale and are in need of more features and capabilities.

SaaS businesses use freemium as an acquisition model to convert their website traffic at a higher rate than usual and to see the viability of their product in the market. Businesses also need to shape their freemium strategy in such a way that, the product must help customers understand that as they grow, their scaling needs can only be met by making the switch to the premium version. Your product should dictate your freemium model and not the other way around.

When should you try the ‘Freemium’ model?

Freemium is not for every SaaS business out there. Here are some questions that might help you decide if freemium is right for you:

  • Is there really a market for your product?

    If there are no immediate customers for the product then it shouldn’t be offered for free. The users are probably those who won’t get converted into paying customers, and they end up putting pressure on your existing resources.
  • Is your product built to self-serve?

    Users of today want all the answers to their product related questions right where they are, instantly. If your business is able to offer that by means of guides, tutorials, videos, and continuous support - you can choose the freemium model.
  • Why should users upgrade to a paid version?

    If you are rolling out new, attractive and useful features that make users really want to spend those big bucks, freemium is the way to go.
  • Have you bucketed your features into different tiers or packages?

    There is no point in offering a product where all the features are exhausted during the freemium plan itself. If that’s the case, users might not stick with the product. You can consider a limited-capability model initially, and then offer more features when the user opts to buy the product.

Additional Reads

More reads on Freemium model, it’s benefits, it’s flaws, and understanding how they affect the acquisition in SaaS businesses:

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